Yet I find it equally hard to argue for much more of an undertow than the one we’ve had to swim through this past month. And I see fundamentals, specifically as they relate to earnings that kick off on July 11, as holding more potential surprises that show strength rather than weakness.

True, the earnings reports will likely reflect a pullback from the torrid recovery pace of the past quarters. But consensus has reduced earnings estimates to a point where they will be easier to hurdle. Beating consensus estimates isn’t as important as the internal pace of growth or the forecasts that companies proffer. But on days when we get such hat tricks, particularly among sector leaders, we’ll get fireworks.

Still, with the headwinds mounting, defense remains the most prudent offense.

In last month’s column I said that, “After several quarters of accelerating earnings and economic growth I think we’re staring at two quarters of decelerating growth on both fronts. So I wouldn’t be surprised to find the unloved and kicked-to-the-curb U.S. dollar and plain vanilla aggregate bond funds fare better than seemed possible just a few months month back.” See “No better bet than the dollar in rough times”

I see no reason not to stay the course with June’s pick: the Powershares Dollar Bull
UUP, +0.33%
When disbelief in bailouts, stimulus and the like rise, faith in the almighty dollar ascends. For traders, I also continue to like a pairing of UUP with the Proshares Ultrashort Euro
EUO, +0.97%
To round out July’s defense, I’d add a fund like the no-load Fidelity Total Bond
FTBFX, +0.09%
or the iShares Barcal ys Aggregate Bond ETF
AGG, -0.04%

None are nearly as plain vanilla plays as risk assumptions or headline projections might have you think. We are in troubled waters wherein any assumption of prior safety needs to be questioned relative to each presumptive projection of it.

Go for megacap multinationals

In July, the above defense could easily become our best offense. But I don’t see it that way; not wholly. Instead, I continue to see the case being laid for megacap multinationals that are currently in better balance-sheet shape than they’ve ever been while at the same time never better positioned for capitalizing when growth returns to the global sphere.

The fact that such names are yielding more than the 10-year treasury note in advance of any capital appreciation doesn’t mean they won’t be subject to increasingly attractive valuations (born of lower prices based on all the known fears); the odds still favor that they will be. But by the time the odds favor their ascension, you’ll likely have missed out on the opportunity at the kinds of basement prices I think we’re nearing, if not seeing.

In this camp, I also find myself repeating myself. I like the actively managed Fidelity Mega Cap Stock
FGRTX, -0.12%
and the State Street SPDR Dow Diamonds
DIA, -0.06%
; see my take on FGRTX and DIA in last month’s column. To that list, I’ll add a new top-ranked exchange-traded fund in my quarterly ETF rankings: the State Street SPDR S&P Dividend
SDY, +0.03%
It’s less a play on the megacap yield stein that I think is worth lifting, and more a yield chaser to that quaff.

I’m not recommending chasing yield. Instead, I am recommending an ETF whose basket of yield providers isn’t the typical yield-chase play junk bonds or financial dividends — financials amount to 11% of the holding inside SDY. Instead it represents the crowning achievement of the S&P High Yield Dividend Aristrocats Index on which it is based. (The index relates the performance of the 60 highest dividend-yielding S&P Composite 1500 companies which “have followed a managed dividends policy of consistently increasing dividends every year for at least 25 years”.) The result is a balance sheet complement to the mega-cap stock and yield story based on a very different way to tell the tale; consumer goods, utilities and industrial names account for 55% of the assets in this ETF.

Finally, not far afield of what’s going on in the stocks, bonds and currency dales, is the ongoing trade in the long-term trend that favors soft commodities. Right about now, as the pace of growth is slowing and the prices of commodities are blowing some of the froth off, it looks like an opportune time to trade into the soft goods that emerging market consumers increasingly demand more of but can’t produce; cattle, corn, sugar, wheat and more. (Last month I recommended owning the actively managed no-load Fidelity Consumer Staples
FDFAX, +0.41%
as a way to profit from this; this month’s pick hedges that pick more than replaces it.)

To frequent readers, my preferred play here should be a familiar one: the Powershares Agriculture ETF
DBA, -0.32%
DBA’s basket tells you the story: cattle, corn, cocoa, cotton, soybeans, sugar, wheat are all in there — and all are en route to an emerging marketplace somewhere.

On that note, let me end July’s column where we begin it: en route to an emerging marketplace somewhere. In July, our market may emerge from its fear driven state. The eurozone is unlikely to shake off its riven condition. Pacific Rim markets are unlikely to delink from either our market behavior or their growth potential. A combustible mix — perfect conditions for fireworks!

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